Ensure your inheritance goes to loved ones and not the taxman

With thresholds frozen until at least 2018, how can you tackle your potential
tax liability?

9:54AM BST 03 Jun 2013

More than £470m in inheritance tax (IHT) could be saved each year through careful tax planning.

According to the latest 2013 Tax Action report from financial advice trade body Unbiased.co.uk, there has been a £24m rise in IHT waste from 2012 due to lack of forward planning, bringing this year’s total to £472 million.

Under current rules, when you die, IHT is charged at 40 per cent on anything you leave over £325,000, if you’re single or divorced, or £650,000, if you’re married. If you’re widowed, it is up to £650,000 depending on how much allowance was used when your partner passed away. This means millions of homeowners risk leaving a tax bill for loved ones when they die. Even worse, IHT is normally payable before your family or friends can inherit anything from you, which means they will have the added stress of having to find this money quickly.

The IHT threshold has now been frozen until 2018, despite hopes that it would increase sooner than this, which means it is vital to do everything you can as soon as possible to minimise your liability.

Karen Barrett, chief executive of Unbiased.co.uk, said, “The message is clear – take time to understand your tax position, make the most of tax reliefs and allowances available to you and ensure that you are being as tax efficient as possible. Tax is an area where seeking professional advice can really make a huge difference to your pocket.”

Fortunately, there are steps you can take to reduce or, in some cases, even remove any potential IHT bill, while in many cases still retaining full control of your estate. The Telegraph offers an Inheritance Tax planning service, provided by Skipton Financial Services Limited (SFS), who can offer appropriate guidance and recommendations.

There are several ways to reduce IHT bills. For example, everyone is entitled to gift £3,000 exempt from IHT in any one tax year. You can give more substantial financial gifts if you want to, but you must live for at least seven years from the date of the gift before it is free from tax.

Remember that failing to think about how to tackle a potential IHT liability could have serious consequences for your loved ones. No one wants to leave people they care about with a bill that could have been substantially reduced, or even eliminated altogether, so seek advice regarding the options which are best for you as soon as possible.